Cash for (Electronic) Clunkers

Cash for (Electronic) Clunkers

Okay, now we all know what to do with old gas guzzlers. But even before cash for clunkers came along, no one drove a jalopy into a landfill. In fact, nearly half of new car purchases involve trade-ins.

Why can't electronics -- computers, cell phones, digital cameras and MP3 players -- work the same way?

That's what Israel Ganot and Rousseau Aurelien want to know. It's the reason they started a Boston-based company called Gazelle, which takes back all those outmoded devices that, if you're like me, you've got cluttering your office and attic.

"Our vision is nothing short of redefining consumption, changing the way people buy, sell and recycle electronics," Ganot, who is president and CEO of Gazelle, told me recently by phone. "We own too many products that we don't use. We always buy the latest and greatest. They end up tucked away in your attic. Some get thrown in the garbage. Or recycled improperly."

As I'm writing this blogpost, here's what's happening on Gazelle, which is transparent about its operations:

  • Someone from Sun Lakes, AZ just got $140 for their Blackberry RIM Storm 9530
  • Someone from Renton, WA just got $46 for their Blackberry RIM Curve 8310
  • Someone from Hillside, NJ just got $66 for their Sony Handycam DCR-TRV38 Camcorder

Now, lest you think that selling all your old gadgets is going to recoup the money you lost in your 401-k, I must add that I tried to sell a couple of ancient iPods on Gazelle and learned that they weren't worth anything. Still, Gazelle will take even worthless items back and recycle them, provided that you have something of value to sell. The company won't take TV sets or printers because they're too heavy to ship.

Is there really a business in turning electronic trash to cash? Rousseau Aurelien, who grew up in Haiti and came to the U.S. to go college, wondered about that several years ago after he sold a pair of used speakers on eBay. Aurelien, a software enginer, Internet consultant and entrepreneur, lived in Boston. The buyer of the speakers lived in Seattle. "Logistics was a nightmare," he recalled. Then Aurelien put a Mac laptop up for sale and ran into a different problem: "Because it was an appealing item, it attracted unsavory characters" who couldn't be trusted to keep their promises to pay, he says.

To test his idea further, Aurelien raised about $60,000 from friends and family to buy a shipment of laptops from a GE-owned leasing company. He scrubbed and refurbished the machines, put them up for sale on eBay and brought in about $500,000 in revenues. An early investor in his company, which was originally called Second Rotation, then connected him with Ganot.

Ganot had spent six years as an EBay executive, so he understood what the online auction platform could and could not do. "One of the biggest takeaways that I had from eBay was the ability to create a platform that allows any seller, from anywhere in the world, to compete with the big guys," he told me.

Here's how Gazelle works: The company buys electronics online from consumers, offering free shipping and even providing a Gazelle-branded box to make it as easy as possible to use. (Netflix is a model.) It then sells the goods through Amazon or eBay, or to refurbishers or repair shops. Some end up in the developing world. By the time Gazelle makes an offer to buy an old laptop or cell phone, it knows where the product will be sold and at what prices. "That's where our technology comes in," Ganot says. The average transaction value is about $100 and the typical product spends just a few days in the Gazelle warehouse in Boston.

It's not clear to me whether the business is scalable. Success will create problems–such as where to store all the stuff. As a private company, Gazelle doesn't disclose revenues or profits (though we can be pretty sure there aren't any, yet). So far, according to Ganot, the company has bought about 100,000 products from about 50,000 sellers. Gazelle employs about 50 people.

Last month, Gazelle made news by rolling out a website with Costco that enables Costco's 55 million members to recycle electronics in exchange for money deposited on their Costco card. "Their customers can essentially convert old electronics into next week's groceries," Ganot says. Costco, he adds, has "every incentive to roll this out to their customers in a big way." The giant retailer doesn't want to be in the recycling business.

Like Aurelien, Ganot is an immigrant turned entrepreneur. Born in Lima, he grew up in Israel, went to NYU and worked as a case writer at Harvard Business School and as a retail analyst at Goldman Sachs. He put in time at Amazon before joining eBay, where he eventually oversaw its UK operations, a $300-million-a-year business.

Besides the credentials of the founders, what impresses me about Gazelle is its backers. Rockport Capital, a Boston-based venture firm with a long history of investing in clean technology firms, is among them. Austin Ligon, the former CEO of CarMax, sits on the Gazelle board, as does Alexander "Hap" Ellis III of Rockport Capital.

Because Gazelle is essentially paying people to be environmentally responsible, I hope the company succeeds. I only wish I'd put those old iPods up for sale sooner.

Gazelle's warehouse.